We have been of the opinion that Chair Janet Yellen’s action late last year in terminating quantitative easing and signaling the return to a more traditional Fed policy in normalizing interest rates marked a constructive change for Fed policy. To us this also signaled an early indication of the major redirection for global financial markets. As much as Europe and Japan have followed the US in economic policy, Yellen’s actions do signal that an end to zero interest rates may be in sight on a global basis in the not too distant future. The US being the world’s largest economy may likely be the early indicator for global central banks.
Geopolitics is the current prevailing driving theme for financial markets. Europe is preoccupied with Brexit and elections as well as financial issues for countries such as France, Greece, Italy and Germany. Rising tension with Russia with the current focus on Syria dominate Washington’s relationship with Moscow. With regard to the US’s relationship with China, much is up in the air since President Trump has threatened to label China a currency manipulator many times over and currently is using trade as a leverage for China to pressure North Korea on the nuclear issue. The US is sending an aircraft carrier battle group to the North China sea in anticipation of any further nuclear tests on the part of North Korea.